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Hardware And Services Help IBM Beat Expectations For 3Q

Posted by inet - 2005-10-18

Good results in hardware and services aided third-quarter profits at International Business Machines Corp., beating analysts' forecasts for the technology bellwether.

In the three months ending Sept. 30, IBM earned $1.52 billion, or 94 cents per share, on revenue of $21.5 billion.

In the same period last year profit was $1.55 billion, 92 cents per share, on revenue of $23.3 billion.

But comparisons are complicated because last year's figures included IBM's personal-computer division, which since has been sold to China's Lenovo Group Ltd. The year-ago quarter also included a one-time charge of $320 million from the settlement of a pension-related lawsuit.

Without that charge and the PC operations, the continuing operations last year earned $1.03 a share. This year's third quarter included a $525 million tax payment that IBM had to make as it repatriated $9 billion in profits earned overseas. Without that charge, IBM's continuing operations showed income of $1.26 per share.

That easily surpassed the $1.13 per share that analysts surveyed by Thomson Financial had been expecting. IBM fell short of the revenue forecast of $21.7 billion. Sales rose just 4 percent over last year's non-PC operations.

Mark Loughridge, Senior Vice President and Chief Financial Officer, said in an earnings call with analysts Monday that IBM’s SMB segment was its strongest industry segment for the third quarter with 10 percent revenue growth compared to the year-earlier period. He said the growth was fueled by “our Express Offerings and strong network of Business Partners and ISV’s.”

He noted that the SMB grew at a double-digit pace for the second quarter in a row with the strongest showing in the Americas.

IBM saw particularly strong growth in Business Partner led eServer segments including iSeries, pSeries and xSeries. Revenues for iSeries for the period were up 25 percent, while pSeries sales jumped 15 percent and xSeries business grew 11 percent. Loughridge noted that xSeries grow was helped by a 90 percent year over year grow in blade servers.

Websphere sales for the period jumped 14 percent, while Lotus revenues were up 12 percent, and Tivoli grew 8 percent.

The results were an important benchmark in what has been an uneven year for IBM, which has yet to completely persuade Wall Street that its strategy of selling a wide slate of "business performance transformation services" will dramatically transform IBM's own results.

The company's first-quarter results fell short of Wall Street's forecasts, prompting the company to cut 14,500 jobs. While the next period provided stronger earnings, IBM shares are still down 16 percent this year.

Even upgrades from some analysts in the past week failed to do much to lift the stock, which gained 24 cents to close at $82.59 on the New York Stock Exchange before Monday's report was released. The shares have traded between $71.85 and $99.10 over the past 52 weeks.

Although the third quarter often has some seasonal slowness, Big Blue's hardware division benefited from the September release of IBM's new z9 mainframes, giant corporate computers that cost more than $1 million each.

The segment of business transformation services also posted good results, with revenue rising 35 percent. "IBM had a good quarter," Chairman Sam Palmisano said in a statement. "It showed the strength of our business model across hardware, software and services, and we continued to see the benefit of the strategic transitions that we've implemented in past quarters."

In the first nine months of 2005, IBM earned $4.75 billion, $2.90 per share, on revenue of $66.7 billion. In the first three quarters of last year, profits were $4.65 billion, $2.72 per share, on revenue of $68.6 billion.

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